<PAGE>
======================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
Commission file number 1-7955
------------------------------
INTERNATIONAL COMFORT PRODUCTS CORPORATION
- ----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Canada 98-0045209
- ----------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Corporate Centre Drive, Suite 200, Franklin, Tennessee 37067
- ----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(615) 771-0200
- ----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
As of October 29, 1998, there were 41,495,700 shares of International
Comfort Products Corporation Ordinary Shares outstanding.
======================================================================<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS INCLUDED IN THIS
QUARTERLY REPORT ON FORM 10-Q
INTERNATIONAL COMFORT PRODUCTS CORPORATION
AND SUBSIDIARIES
(Unaudited)
Page
----
Consolidated Statements of Income
(Three months ended September 30, 1998 and September 30, 1997) 3
(Nine months ended September 30, 1998 and September 30, 1997) 4
Consolidated Balance Sheets (As of September 30, 1998,
September 30, 1997 and December 31, 1997) 5 - 6
Consolidated Statements of Changes in Financial Position
(Nine months ended September 30, 1998 and September 30, 1997) 7
Notes to Consolidated Financial Statements 8 - 11
-2-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Consolidated Statements of Income
For the Three Months Ended September 30, 1998 and 1997 - UNAUDITED
(In Millions of U.S. Dollars) - Canadian GAAP
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 220.5 $ 177.1
Cost of Sales 174.7 142.3
- ----------------------------------------------------------------------------
Gross Profit 45.8 34.8
Selling, General and Administrative Expenses 24.5 22.6
- ----------------------------------------------------------------------------
Operating Profit 21.3 12.2
- ----------------------------------------------------------------------------
Financial Expenses
Interest expense 5.0 4.4
Amortization of debt issuance costs 0.2 0.3
- ----------------------------------------------------------------------------
5.2 4.7
- ----------------------------------------------------------------------------
Net Income $ 16.1 $ 7.5
============================================================================
Average number of shares (in millions) 41.5 39.7
============================================================================
Earnings Per Ordinary Share
Basic $ 0.39 $ 0.19
Fully diluted $ 0.37 $ 0.18
============================================================================
</TABLE>
see accompanying notes
-3-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Consolidated Statements of Income
For the Nine Months Ended September 30, 1998 and 1997 - UNAUDITED
(In Millions of U.S. Dollars) - Canadian GAAP
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Net Sales $ 571.8 $ 491.3
Cost of Sales 449.7 390.2
- ----------------------------------------------------------------------------
Gross Profit 122.1 101.1
Selling, General and Administrative Expenses 71.6 67.0
- ----------------------------------------------------------------------------
Operating Profit 50.5 34.1
- ----------------------------------------------------------------------------
Financial Expenses
Interest expense 14.5 14.0
Amortization of debt issuance costs 0.8 0.9
Refinancing costs 5.0 -
- ----------------------------------------------------------------------------
20.3 14.9
- ----------------------------------------------------------------------------
Net Income $ 30.2 $ 19.2
============================================================================
Average number of shares (in millions) 40.6 39.6
============================================================================
Earnings Per Ordinary Share
Basic $ 0.74 $ 0.49
Fully diluted $ 0.71 $ 0.47
============================================================================
</TABLE>
see accompanying notes
-4-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Consolidated Balance Sheets
(In Millions of U.S. Dollars) - Canadian GAAP - (UNAUDITED)
<TABLE>
<CAPTION>
September 30 December 31
------------------- -------------
1998 1997 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and short-term deposits $ 22.6 $ 19.4 $ 31.0
Accounts and note receivable 128.9 104.9 104.2
Inventories 108.4 103.8 94.5
Prepaid expenses and other 8.0 3.1 7.6
- -----------------------------------------------------------------------------
267.9 231.2 237.3
- -----------------------------------------------------------------------------
Fixed Assets
Property, plant and equipment 232.5 216.2 214.3
Accumulated depreciation 131.5 123.1 120.7
- -----------------------------------------------------------------------------
101.0 93.1 93.6
- -----------------------------------------------------------------------------
Intangible Assets, net 30.5 9.0 11.0
Other Assets, net 13.8 12.5 10.1
- -----------------------------------------------------------------------------
$ 413.2 $ 345.8 $ 352.0
=============================================================================
</TABLE>
see accompanying notes
-5-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Consolidated Balance Sheets
(In Millions of U.S. Dollars) - Canadian GAAP - (UNAUDITED)
<TABLE>
<CAPTION>
September 30 December 31
------------------- -------------
1998 1997 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES
Current Liabilities
Short-term borrowings $ 19.8 $ 21.2 $ 19.7
Accounts payable 52.0 44.5 44.8
Accrued liabilities 31.5 22.2 26.5
Product warranty 9.6 8.6 9.5
Current portion of long-term debt 0.2 - 0.2
- -----------------------------------------------------------------------------
113.1 96.5 100.7
Long-Term Debt 175.4 165.0 165.6
Product Warranty 14.8 17.8 16.2
Other Long-Term Liabilities 14.9 17.0 18.0
- -----------------------------------------------------------------------------
318.2 296.3 300.5
- -----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Ordinary Shares 186.3 171.0 171.2
Deficit (86.2) (119.2) (116.4)
Foreign Currency
Translation Adjustment (5.1) (2.3) (3.3)
- -----------------------------------------------------------------------------
95.0 49.5 51.5
- -----------------------------------------------------------------------------
$ 413.2 $ 345.8 $ 352.0
=============================================================================
</TABLE>
see accompanying notes
-6-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Consolidated Statements of Changes In Financial Position
For the Nine Months Ended September 30, 1998 and 1997 - UNAUDITED
(In Millions of U.S. Dollars) - Canadian GAAP
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Cash Provided By (Used for): 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net income $ 30.2 $ 19.2
Items not involving current cash flows
Depreciation and amortization 13.0 13.0
Refinancing costs 2.3 -
Changes in working capital
Accounts and note receivable (17.7) (32.2)
Inventories (2.1) (3.8)
Prepaid expenses and other (0.1) 1.8
Accounts payable, accrued liabilities,
and product warranty (0.3) 4.7
- -----------------------------------------------------------------------------
25.3 2.7
- -----------------------------------------------------------------------------
INVESTING
Property, plant and equipment (10.3) (5.4)
Acquisition of United Electric Company (25.6) -
Acquisition of Watsco Components (14.3) -
Acquisition of distribution company - (1.8)
Proceeds from sale of Coastline
and factory branches - 22.3
- -----------------------------------------------------------------------------
(50.2) 15.1
- -----------------------------------------------------------------------------
FINANCING
Long-term debt issued 150.0 -
Ordinary shares issued 15.1 1.8
Repayment of long-term debt (140.2) -
Refinancing costs (8.6) -
- -----------------------------------------------------------------------------
16.3 1.8
- -----------------------------------------------------------------------------
Increase (Decrease) in Cash (8.6) 19.6
Net Cash (Borrowings) - Beginning of the Period 11.4 (21.4)
- -----------------------------------------------------------------------------
Net Cash (Borrowings) - End of the Period $ 2.8 $ (1.8)
=============================================================================
Represented by
Cash and short-term deposits $ 22.6 $ 19.4
Less: Short-term borrowings (19.8) (21.2)
- -----------------------------------------------------------------------------
$ 2.8 $ (1.8)
=============================================================================
</TABLE>
see accompanying notes
-7-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1998 and 1997 - UNAUDITED
(In Millions of U.S. Dollars) - Canadian GAAP
- ----------------------------------------------------------------------------
1. Reference should be made to the consolidated financial statements for
the year ended December 31, 1997 included in Form 10-K filed on March
31, 1998, for details of significant accounting policies. Certain
comparative figures have been reclassified to conform with current
financial statement presentation.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial
position as of September 30, 1998 and 1997, and results of operations
and changes in financial position for the periods then ended. The
interim results are not necessarily indicative of the results to be
expected for the full year.
3. Details of inventories are as follows:
<TABLE>
<CAPTION>
September 30 December 31
------------------ -----------
1998 1997 1997
-------------------------------------------------------- -----------
UNAUDITED
<S> <C> <C> <C>
Finished goods $ 61.3 $ 64.9 $ 58.8
Raw materials and work in process 19.7 11.5 13.4
Service parts 27.4 27.4 22.3
-------------------------------------------------------- -----------
$ 108.4 $ 103.8 $ 94.5
======================================================== ==========
</TABLE>
-8-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1998 and 1997 - UNAUDITED
(In Millions of U.S. Dollars) - Canadian GAAP
- ----------------------------------------------------------------------------
4. Significant Differences Between Canadian and U.S. Accounting
Practices
Accounting principles adopted by the Company as reflected in these
consolidated financial statements in accordance with Canadian GAAP
are generally consistent with accounting principles accepted in the
United States ("U.S. GAAP"), with certain exceptions. The following
reconciliations reflect the approximate differences in these
accounting principles where applicable to the Company. If accounting
principles generally accepted in the United States were followed, the
effect on the consolidated financial statements would be:
(a) Net income under U.S. GAAP:
--------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income (as reported) $ 16.1 $ 7.5 $ 30.2 $ 19.2
Accounting for income taxes (.2) (.2) (.5) (.5)
Post-retirement benefits (.4) (.5) (1.5) (1.6)
-------------------------------------------
Net income under U.S. GAAP 15.5 6.8 28.2 17.1
Other comprehensive income
Foreign currency translation
adjustment (1.3) - (1.8) (.3)
-------------------------------------------
Comprehensive income under U.S.
GAAP $ 14.2 $ 6.8 $ 26.4 $ 16.8
===========================================
Weighted average number of
ordinary shares outstanding
during the period under U.S.
GAAP (in millions)
Basic 41.5 39.7 40.6 39.6
Diluted 43.6 41.8 42.7 41.6
Net income per share under
U.S. GAAP (in dollars)
Basic $ 0.37 $ 0.17 $ 0.69 $ 0.43
Diluted $ 0.36 $ 0.17 $ 0.67 $ 0.42
</TABLE>
-9-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1998 and 1997 - UNAUDITED
(In Millions of U.S. Dollars) - Canadian GAAP
- -----------------------------------------------------------------------------
4. Significant Differences Between Canadian and U.S. Accounting
Practices (Continued)
(b) Consolidated Balance Sheets:
---------------------------
<TABLE>
<CAPTION>
September 30 December 31
------------------- -----------
1998 1997 1997
---- ---- ----
<S> <C> <C> <C>
Total assets (as reported) $ 413.2 $ 345.8 $ 352.0
Items increasing reported total assets
Deferred income taxes 3.0 3.7 3.5
Post-retirement and pension benefits 3.2 3.2 3.2
-------------------- ------------
Total assets - U.S. GAAP $ 419.4 $ 352.7 $ 358.7
==================== ============
Shareholders' equity (as reported) $ 95.0 $ 49.5 $ 51.5
Items increasing (decreasing)
reported shareholders' equity
Deferred income taxes 2.2 2.9 2.7
Post-retirement and pension
benefits (7.4) (7.2) (5.9)
-------------------- ------------
Shareholders' equity - U.S. GAAP $ 89.8 $ 45.2 $ 48.3
==================== ============
</TABLE>
(c) Consolidated Cash Flows:
-----------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-----------------
1998 1997
---- ----
<S> <C> <C>
Net cash used in operating activities $ 25.3 $ 2.7
Net cash provided (used in) investing activities (35.9) 15.1
Net cash provided (used in) financing activities 2.2 (16.0)
----- -----
Increase (decrease) in cash and cash equivalents (8.4) 1.8
Cash and cash equivalents - beginning of the period 31.0 17.6
----- -----
Cash and cash equivalents - end of the period $ 22.6 $ 19.4
===== =====
</TABLE>
Non-cash transactions:
In 1998, the Company acquired Watsco Components in exchange for the
issuance of ordinary shares in the amount of $14.3.
-10-
<PAGE>
INTERNATIONAL COMFORT PRODUCTS CORPORATION
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1998 and 1997 - UNAUDITED
(In Millions of U.S. Dollars) - Canadian GAAP
- ----------------------------------------------------------------------------
5. Summarized Financial Information
International Comfort Products Holdings, Inc. ("ICP Holdings") is
a wholly-owned subsidiary of the Company. ICP Holdings is the issuer
of certain securities as to which a registration statement has
been declared effective under the Securities Act of 1933. As a result
of that registration statement being declared effective, ICP Holdings
ordinarily would be subject to the reporting requirements under
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"). Because these securities, however, are fully and
unconditionally guaranteed by the Company and management has
determined that such information is not material to the holder of
such securities, the Company and ICP Holdings have filed with the
Commission a request that ICP Holdings be exempted from the reporting
requirements of the Exchange Act. Financial information relating to
ICP Holdings is presented herein in accordance with Staff Accounting
Bulletin No. 53 as an addition to the notes to the financial
statements of the Company. Summarized financial information for ICP
Holdings is as follows:
Condensed Income Statement Information:
---------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 208.5 $ 161.0 $ 538.2 $ 453.1
Gross profit 40.8 30.0 110.3 91.4
Net income 14.9 6.3 31.4 19.7
</TABLE>
Condensed Balance Sheet Information:
------------------------------------
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
---------------- -------------
<S> <C> <C>
Current assets $ 241.2 $ 207.3
Total assets 382.1 316.1
Current liabilities 107.2 94.2
Total liabilities 308.7 289.3
Shareholders' equity 73.4 26.8
</TABLE>
The agreements governing the terms of certain of the Company's debt
contain certain covenants which, among other things, place
limitations on the ability of subsidiaries of ICP Holdings to pay
dividends and make other restricted payments, as defined, to ICP
Holdings. Pursuant to the terms of the most restrictive covenant
regarding restricted payments, as of September 30, 1998, $110
million of net assets of subsidiaries of ICP Holdings were not
available for payment of dividends to ICP Holdings.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------------------------
FINANCIAL RESULTS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
For the three months ended September 30, 1998, net income was $16.1 million
or $0.39 per share, compared with $7.5 million or $0.19 per share for the
corresponding period in 1997.
The following table sets forth, for the third quarter ended September 30,
1998 and 1997, certain information relating to the operations of the Company,
expressed as a percentage of net sales.
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 79.2 80.3
---------------------------------------------------------------
Gross profit 20.8 19.7
Selling, general and administrative expenses 11.1 12.8
---------------------------------------------------------------
Operating profit 9.7 6.9
Financial expenses 2.4 2.7
---------------------------------------------------------------
Net income 7.3 4.2
===============================================================
</TABLE>
Net Sales
In the third quarter of 1998, net sales were $220.5 million compared with
$177.1 million for the corresponding quarter of 1997, an increase of $43.4
million or 24.5%. In 1997, the Company sold its distribution outlets in the
U.S. southeast and midwest. Excluding sales from these divested operations
and the 1998 acquisitions of United Electric Company ("United Electric"), a
company engaged principally in the manufacture of components for HVAC systems,
and Watsco Components Inc. (now known as "A-1 Components"), the Company's net
sales increased by $38.2 million or 22.8%, to $205.9 million in 1998 compared
to $167.7 million in 1997. The increase in net sales for the third quarter
was attributed to all business segments of the Company, with the Company's
largest business group, residential products, accounting for approximately
$20.7 million of the sales increase due to higher summer temperatures in 1998
across many portions of the United States.
Gross Profit
For the three months ended September 30, 1998, gross profit was $45.8 million
or 20.8% of net sales, compared with $34.8 million or 19.7% in the same period
of 1997, an increase of $11.0 million or 31.6%. The increase in gross profit
percentage was primarily due to higher fixed
-12-
<PAGE>
burden absorption from increased production levels and continuous cost
savings achieved at the Lewisburg, Tennessee manufacturing facility,
partially offset by product mix.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses amounted to $24.5
million in the third quarter of 1998 or 11.1% of net sales, compared with
$22.6 million or 12.8% for the same period in 1997, an increase of $1.9
million or 8.4%. Higher SG&A expenses associated with the acquisitions of
United Electric and A-1 Components in 1998 coupled with 1997 acquisitions of
distribution companies in western Canada and Spain and new parts outlets in
Latin America were partially offset by cost savings from the sale of the
Company's non-core distribution businesses in 1997.
Operating Profit
Operating profit was $21.3 million or 9.7% of net sales for the three months
ended September 30, 1998, compared with $12.2 million or 6.9% in the
corresponding period in 1997, an increase of $9.1 million, or 74.6%.
Financial Expenses
Financial expenses were $5.2 million for the third quarter of 1998 or 2.4% of
net sales, compared with $4.7 million or 2.7% in the corresponding period in
1997.
Income Taxes
The Company is currently not recording income taxes as a result of accumulated
tax losses from prior years. However, the Company anticipates that its U.S.
operations will record a tax provision in or around the beginning of 1999.
Net Income
For the third quarter ended September 30, 1998, net income was $16.1 million
or $0.39 per share, compared with $7.5 million or $0.19 per share in the
corresponding quarter in 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
For the nine months ended September 30, 1998, income before refinancing costs
was $35.2 million or $0.87 per share, compared with $14.9 million or $0.49 per
share for the corresponding period in 1997. During the second quarter of
1998, the Company refinanced its 9.75% senior secured notes due 2000 with an
institutional private placement of $150 million 8.625% Senior Notes due 2008.
Net income and earnings per share after the costs associated with the
refinancing for the nine months ended September 30, 1998 were $30.2 million
and $0.74 per share, respectively.
-13-
<PAGE>
The following table sets forth, for the nine months ended September 30, 1998
and 1997, certain information relating to the operations of the Company,
expressed as a percentage of net sales.
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 78.7 79.4
---------------------------------------------------------------
Gross profit 21.3 20.6
Selling, general and administrative expenses 12.5 13.6
---------------------------------------------------------------
Operating profit 8.8 7.0
Interest expense and amortization of debt
issuance costs 2.7 3.1
Refinancing costs .8 -
---------------------------------------------------------------
Net income 5.3 3.9
===============================================================
</TABLE>
Net Sales
For the nine months ended September 30, 1998, net sales were $571.8 million
compared with $491.3 million for the corresponding period of 1997, an increase
of $80.5 million or 16.4%. Excluding sales from the divested operations and
the acquisitions of United Electric and A-1 Components in 1998, the Company's
net sales increased by $79.2 million or 17.1%, to $543.6 million in 1998
compared to $464.4 million in 1997. The increase in net sales for the nine
months ended September 30, 1998 compared to 1997 was attributed to all
business segments of the Company, with the residential, international and
commercial groups contributing $32.7 million, $25.8 million, and $12.7 million,
respectively, of incremental revenue.
Gross Profit
For the nine months ended September 30, 1998, gross profit was $122.1 million
or 21.3% of net sales, compared with $101.1 million or 20.6% in the same
period of 1997, an increase of $21.0 million or 20.8%. The increase in gross
profit percentage was primarily due to higher fixed burden absorption from
increased production volume and continuous cost savings achieved at the
Lewisburg plant, partially offset by product mix.
Selling, General and Administrative Expenses
SG&A expenses amounted to $71.6 million in the first nine months of 1998 or
12.5% of net sales, compared with $67.0 million or 13.6% for the same period
in 1997, an increase of $4.6 million or 6.9%. Higher SG&A expenses
associated with the acquisitions of United Electric and A-1 Components in 1998
coupled with 1997 acquisitions of distribution companies in western Canada and
Spain and new parts outlets in Latin America were partially offset by cost
savings from the sale of the Company's non-core distribution businesses in
1997.
-14-
<PAGE>
Operating Profit
Operating profit was $50.5 million or 8.8% of net sales for the nine months
ended September 30, 1998, compared with $34.1 million or 7.0% in the
corresponding period in 1997, an increase of $16.4 million, or 48.1%.
Financial Expenses
Excluding refinancing costs in 1998, financial expenses were $15.3 million
for the first nine months of 1998 or 2.7% of net sales, compared with $14.9
million or 3.1% in the corresponding period in 1997. The refinancing costs
of $5.0 million in 1998 include an early prepayment premium of $2.3 million
on the refinanced debt and the write-off of unamortized debt issuance costs
associated with the old senior notes.
Income Taxes
The Company is currently not recording income taxes as a result of accumulated
tax losses from prior years. However, the Company anticipates that its U.S.
operations will record a tax provision in or around the beginning of 1999.
Net Income
For the nine months ended September 30, 1998, net income was $30.2 million or
$0.74 per share, compared with $19.2 million or $0.49 per share, in the
corresponding period in 1997. Income before refinancing costs was $35.2
million or $0.87 per share, an increase of $16.0 million or 83.3%, compared
to the corresponding period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses cash from operations and from financing activities to fund
its working capital needs, fund its capital expenditures and make payments on
outstanding indebtedness.
For the nine months ended September 30, 1998, free cash flow (cash from
operations adjusted for cash received from or utilized in investing activities)
was negative $10.6 million compared to $17.8 million for the same period in
1997, a decrease of $28.4 million. In 1998, investing activities included the
acquisition of United Electric for $25.6 million, whereas in the corresponding
period in 1997, investing activities included the proceeds from sale of
Coastline Distribution Inc. and four factory branches of $22.3 million and the
acquisition of Automatic Control House business of $1.8 million. Excluding
these acquisitions and divestiture, free cash flow was $17.7 million higher in
1998 compared to 1997. As of September 30, 1998, working capital was $154.8
million compared to $134.7 million a year earlier.
The Company has various credit facilities available to assist it in meeting
its liquidity requirements. These facilities consist of revolving lines of
credit and an accounts receivable securitization. At September 30, 1998,
total commitments under the lines of credit and
-15-
<PAGE>
securitization totaled $104.6 million, of which $19.8 million was outstanding.
On May 13, 1998, the Company completed an institutional private placement of
$150 million aggregate principal amount of 8.625% Senior Notes due 2008, the
proceeds of which were used to redeem the Company's old senior notes. In
addition, a $25 million term bank loan is also outstanding which is also used
in the long-term financing of the Company. At September 30, 1998, the
outstanding balance under Long-Term Debt (including the current portion) is
$175.6 million.
INTERCOMPANY DIVIDEND RESTRICTION
The Company has no substantial operations of its own and accordingly has no
independent means of generating revenue. As a holding company, the Company's
internal sources of funds to meet its cash needs, including payment of
expenses, are dividends and other permitted payments from its direct and
indirect subsidiaries. Certain of the Company's lending arrangements impose
upon subsidiaries of ICP Holdings financial and operating covenants, including,
among others, requirements that subsidiaries of ICP Holdings maintain certain
financial ratios and satisfy certain financial tests, limitations on capital
expenditures and restrictions on the ability of such subsidiaries to incur
debt, pay dividends or take certain other corporate actions. Pursuant to the
terms of the most restrictive covenant regarding restricted payments by such
subsidiaries, as of September 30, 1998, $110 million of net assets of
subsidiaries of ICP Holdings were not available for payment of dividends to
ICP Holdings. Accordingly, management does not believe that these restrictions
presently impair the Company's ability to conduct its business through its
subsidiaries or to pursue its development plans.
YEAR 2000 COMPLIANCE
During the fourth quarter of 1998, the Company will substantially complete
the installation of new information management systems that are year 2000
compliant. The balance of certain functional areas and programs are planned
to be installed during the first quarter of 1999. The systems have been
customized to embrace all aspects of the Company's operations from ordering
raw materials to production of finished products, as well as for financial
analysis and disclosure and general management purposes. The total expected
cost of the new information management system is approximately $7.5 million,
the majority of which was capitalized in 1997 and 1998. A management
committee is responsible for ensuring that all interfacing systems of
suppliers and customers will be year 2000 compliant by the end of the first
quarter of 1999. Communication and feedback with these third parties is
substantially complete. The Company is in the process of testing and
evaluating all critical manufacturing areas.
The foregoing discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated financial statements and
notes thereto. The forward-looking statements included in Management's
Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") relating to certain matters involve risks and uncertainties,
including anticipated financial performance, business prospects, anticipated
capital expenditures and other similar
-16-
<PAGE>
matters, which reflect management's best judgment based on factors currently
known. Actual results and experience could differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements as a result of a number of factors, including but
not limited to those discussed in MD&A. Factors that might affect such
forward-looking statements include products, competitive factors in the
industry, regulatory approvals and uncertainty of consummation of future
acquisitions. Forward-looking information provided by the Company pursuant
to the safe harbor established under the Private Securities Litigation Reform
Act of 1995 should be evaluated in the context of these factors. In addition,
the Company disclaims any intent or obligation to update these forward-looking
statements.
-17-
<PAGE>
PART II- OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) In accordance with the provisions of Item 601 of Regulation
S-K, the following have been furnished as Exhibits to this Quarterly
Report on Form 10-Q:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3(i), 4.1 Articles of Incorporation of International Comfort Products
Corporation filed as Exhibit 3(i)/4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 filed with the Commission on November 14,
1997, and incorporated herein by this reference.
3(ii), 4.2 Bylaws of International Comfort Products Corporation filed
as Exhibit 1.2 to the Company's Annual Report on Form 20-F
for the year ended December 31, 1993 filed with the
Commission on June 29, 1994, and incorporated herein by this
reference.
4.3 Indenture, dated as of May 13, 1998, by and among
International Comfort Products Holdings, Inc., International
Comfort Products Corporation and United States Trust Company
of New York, as Trustee, with respect to the Series A and
Series B 8 5/8% Senior Notes due 2008 filed as Exhibit 4.5
to the Company's Registration Statement on Form S-4 (File
No. 333-58837) filed with the Commission on July 10, 1998,
and incorporated herein by this reference.
4.4, 10.1 Master Trust Pooling and Service Agreement, dated as of July
25, 1996 among Inter-City Products Receivables Company,
L.P.("ICP-Receivables"), International Comfort Products
Corporation (USA) ("ICP (USA)") and LaSalle National Bank,
as Trustee filed as Exhibit 10.1 to Amendment No. 1 to
the Company's Registration Statement on Form S-4 (File
No. 333-58837 and 333-58837-01) filed with the Commission on
August 28, 1998, and incorporated herein by this reference.
4.5, 10.2 Series 1996-1 Supplement to Master Trust Pooling and Service
Agreement, dated as of July 25, 1996 among ICP-Receivables,
ICP (USA) and LaSalle National Bank, as Trustee (and
correlative form of Class A (Series 1996-1) Certificate and
form of Class B (Series 1996-1) Certificate, and form of
Guaranty from ICP (USA) filed as Exhibit 10.2 to Amendment
No. 1 to the Company's Registration Statement on Form S-4
(File No. 333-58837 and 333-58837-01) filed with the
Commission on August 28, 1998, and incorporated herein by
this reference.
4.6, 10.3 Receivables Purchase Agreement dated as of July 25, 1996
among ICP (USA), Inter-City Products Partner Corporation
("ICP-Partner") and ICP-Receivables filed as Exhibit 10.3
to Amendment No. 1 to the Company's
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Registration Statement on Form S-4 (File No. 333-58837 and
333-58837-01) filed with the Commission on August 28, 1998,
and incorporated herein by this reference.
4.7, 10.4 Certificate Purchase Agreement (Series 1996-1, Class A)
dated as of July 25, 1996 among ICP-Receivables, ICP (USA),
the Purchasers named therein and The Chicago Corporation, as
Agent filed as Exhibit 10.4 to Amendment No. 1 to the
Company's Registration Statement on Form S-4 (File No.
333-58837 and 333-58837-01) filed with the Commission on
August 28, 1998, and incorporated herein by this reference.
4.8, 10.5 Certificate Purchase Agreement (Series 1996-1, Class B)
dated as of July 25, 1996 among ICP-Receivables, ICP (USA)
and Argos Funding Corp. filed as Exhibit 10.5 to Amendment
No. 1 to the Company's Registration Statement on Form S-4
(File No. 333-58837 and 333-58837-01) filed with the
Commission on August 28, 1998, and incorporated herein by
this reference.
4.9, 10.6 First Amendment to Certificate Purchase Agreement (Series
1996-1, Class A) dated as of December 1, 1996 among
ICP-Receivables, ICP (USA), the Purchasers named therein and
The Chicago Corporation, as Agent filed as Exhibit 4.9 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 filed with the Commission
on November 14, 1997, and incorporated herein by this
reference.
4.10, 10.7 First Amendment to Receivables Purchase Agreement and Second
Amendment to Certificate Purchase Agreement (Series 1996-1,
Class A) dated as of January 27, 1997 among ICP-USA,
ICP-Partner, General Heating and Cooling Company, Coastline
Distribution, Inc., ICP-Receivables, Anagram Funding Corp.
and ABN AMRO Chicago Corporation filed as Exhibit 10.7 to
Amendment No. 1 to the Company's Registration Statement
on Form S-4 (File No. 333-58837 and 333-58837-01) filed with
the Commission on August 28, 1998, and incorporated herein
by this reference.
4.11, 10.8 Second Amendment to Receivables Purchase Agreement as of
September 30, 1997 among ICP (USA), ICP-Partner, General
Heating and Cooling Company, ICP-Receivables, Anagram
Funding Corp. and ABN AMRO Chicago Corporation filed as
Exhibit 10.8 to Amendment No. 1 to the Company's
Registration Statement on Form S-4 (File No. 333-58837 and
333-58837-01) filed with the Commission on August 28, 1998,
and incorporated herein by this reference.
27 Financial Data Schedule.
</TABLE>
(b) During the quarter ended September 30, 1998, there were no
Current Reports on Form 8-K filed by the Company.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized both on
behalf of the registrant and in his capacity as principal financial
officer of the registrant.
November 13, 1998 INTERNATIONAL COMFORT PRODUCTS CORPORATION
By:/s/ S. Clanton
---------------------------
Stephen L. Clanton
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and
Chief Accounting Officer)
-20-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ----------- ----------- -----------
<S> <C> <C>
3(i), 4.1 Articles of Incorporation of International Comfort Products
Corporation filed as Exhibit 3(i)/4.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 filed with the Commission on November 14,
1997, and incorporated herein by this reference.
3(ii), 4.2 Bylaws of International Comfort Products Corporation filed
as Exhibit 1.2 to the Company's Annual Report on Form 20-F
for the year ended December 31, 1993 filed with the
Commission on June 29, 1994, and incorporated herein by this
reference.
4.3 Indenture, dated as of May 13, 1998, by and among
International Comfort Products Holdings, Inc., International
Comfort Products Corporation and United States Trust Company
of New York, as Trustee, with respect to the Series A and
Series B 8 5/8% Senior Notes due 2008 filed as Exhibit 4.5
to the Company's Registration Statement on Form S-4 (File
No. 333-58837) filed with the Commission on July 10, 1998,
and incorporated herein by this reference.
4.4, 10.1 Master Trust Pooling and Service Agreement, dated as of July
25, 1996 among Inter-City Products Receivables Company,
L.P.("ICP-Receivables"), International Comfort Products
Corporation (USA) ("ICP (USA)") and LaSalle National Bank,
as Trustee filed as Exhibit 10.1 to Amendment No. 1 to the
Company's Registration Statement on Form S-4 (File No.
333-58837 and 333-58837-01) filed with the Commission on
August 28, 1998, and incorporated herein by this reference.
4.5, 10.2 Series 1996-1 Supplement to Master Trust Pooling and Service
Agreement, dated as of July 25, 1996 among ICP -Receivables,
ICP (USA) and LaSalle National Bank, as Trustee (and
correlative form of Class A (Series 1996-1) Certificate and
form of Class B (Series 1996-1) Certificate, and form of
Guaranty from ICP (USA) filed as Exhibit 10.2 to Amendment
No. 1 to the Company's Registration Statement on Form S-4
(File No. 333-58837 and 333-58837-01) filed with the
Commission on August 28, 1998, and incorporated herein by
this reference.
4.6, 10.3 Receivables Purchase Agreement dated as of July 25, 1996
among ICP (USA), Inter-City Products Partner Corporation
("ICP-Partner") and ICP-Receivables filed as Exhibit 10.3
to Amendment No. 1 to the Company's Registration Statement
on Form S-4 (File No. 333-58837 and 333-58837-01) filed with
the Commission on August 28, 1998, and incorporated herein
by this reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ----------- ----------- -----------
<S> <C> <C>
4.7, 10.4 Certificate Purchase Agreement (Series 1996-1, Class A)
dated as of July 25, 1996 among ICP-Receivables, ICP (USA),
the Purchasers named therein and The Chicago Corporation, as
Agent filed as Exhibit 10.4 to Amendment No. 1 to the
Company's Registration Statement on Form S-4 (File No.
333-58837 and 333-58837-01) filed with the Commission on
August 28, 1998, and incorporated herein by this reference.
4.8, 10.5 Certificate Purchase Agreement (Series 1996-1, Class B)
dated as of July 25, 1996 among ICP-Receivables, ICP (USA)
and Argos Funding Corp. filed as Exhibit 10.5 to Amendment
No. 1 to the Company's Registration Statement on Form S-4
(File No. 333-58837 and 333-58837-01) filed with the
Commission on August 28, 1998, and incorporated herein by
this reference.
4.9, 10.6 First Amendment to Certificate Purchase Agreement (Series
1996-1, Class A) dated as of December 1, 1996 among
ICP-Receivables, ICP (USA), the Purchasers named therein and
The Chicago Corporation, as Agent filed as Exhibit 4.9 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 filed with the Commission
on November 14, 1997, and incorporated herein by this
reference.
4.10, 10.7 First Amendment to Receivables Purchase Agreement and Second
Amendment to Certificate Purchase Agreement (Series 1996-1,
Class A) dated as of January 27, 1997 among ICP-USA,
ICP-Partner, General Heating and Cooling Company, Coastline
Distribution, Inc., ICP-Receivables, Anagram Funding Corp.
and ABN AMRO Chicago Corporation filed as Exhibit 10.7 to
Amendment No. 1 to the Company's Registration Statement
on Form S-4 (File No. 333-58837 and 333-58837-01) filed with
the Commission on August 28, 1998, and incorporated herein
by this reference.
4.11, 10.8 Second Amendment to Receivables Purchase Agreement as of
September 30, 1997 among ICP (USA), ICP-Partner, General
Heating and Cooling Company, ICP-Receivables, Anagram
Funding Corp. and ABN AMRO Chicago Corporation filed as
Exhibit 10.8 to Amendment No. 1 to the Company's
Registration Statement on Form S-4 (File No. 333-58837 and
333-58837-01) filed with the Commission on August 28, 1998,
and incorporated herein by this reference.
27 Financial Data Schedule. 23
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS
SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL
STATEMENTS OF INTERNATIONAL
COMFORT PRODUCTS CORPORATION
FOR THE PERIOD ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-START> JAN-01-1998
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 22,600
<SECURITIES> 0
<RECEIVABLES> 128,900
<ALLOWANCES> 0
<INVENTORY> 108,400
<CURRENT-ASSETS> 267,900
<PP&E> 232,500
<DEPRECIATION> 131,500
<TOTAL-ASSETS> 413,200
<CURRENT-LIABILITIES> 113,100
<BONDS> 175,400
<COMMON> 186,300
0
0
<OTHER-SE> (91,300)
<TOTAL-LIABILITY-AND-EQUITY> 413,200
<SALES> 0
<TOTAL-REVENUES> 571,800
<CGS> 449,700
<TOTAL-COSTS> 71,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,500
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 30,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,200
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.71
</TABLE>
